This paper models the competitive equilibrium wage rate when
employment offers vary according to the amount of anticipated unemployment and
unemployment risk. The competitive wage reflects a compensating differential
which includes a certainty equivalent compensation proportional to the squared
expected unemployment rate and a risk compensation proportional to the
coefficient of unemployment variation. The factors of proportionality are
half the inverse compensated labor supply elasticity and half the relative
risk aversion, respectively. we use panel data to construct a model of
anticipated unemployment and unemployment variance which depends on personal
employment history, industry and economy-wide factors. Compensating wage
differentials ranging from less than 1% to more than l4% are estimated for a
two-digit industry classification over the years 1970 to 1975.